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At the end of this lesson you should be able to do the following:

✓ define Agricultural Economics
✓ distinguish between different economic systems (planned, free market and mixed)
✓ describe factors of production

The study of how limited available resources are used to produce goods and services.

The different types of resources that are used to produce goods and services are called
factors of production. There are four main factors of production: natural resources (land),
labour, capital and entrepreneurship.
Natural resources (land)
➢ They consist of all gifts of nature: water, arable land, vegetation, natural forests, animal
life, marine resources, the atmosphere and even sunshine.
➢ Natural resources are fixed in supply.
Labour
➢ Goods and services cannot be produced without human effort.
➢ Labour can be defined as the exercise of human mental and physical effort in the
production of goods and services.
➢ It includes all human effort exerted with a view of obtaining reward in form of income.
➢ The quantity of labour depends on population size and proportion.
➢ However the quality of labour is even more important and is described by the term
human capital which refers to the skill, knowledge and health of the workers.
➢ Education, training and experience are all important determinants of human capital.
Capital
➢ This comprises of all manufactured resources such as machines, tools and buildings
which are used in the production of other goods and services.
➢ Capital goods are not produced for their own sake but to produce other goods.
Entrepreneurship
➢ The availability of natural resources, land and capital is not sufficient to ensure
economic success of a farm business.
➢ These factors have to be combined and organised by people who see opportunities and
are willing to take risks by producing goods in the expectation that they will be sold.
➢ These people are called entrepreneurs.

⦁ The government controls the economy, in terms of deciding how to use and distribute
resources.
⦁ The government regulates prices and wages; it may even determine what sorts of work
individuals do.
⦁ is a type of command economic system and businesses are not run to create
profit
⦁ Cuba, North Korea and the People’s Republic of China are examples of continue
planned economies.
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⦁ Basic goods and services are provided to all members of the society
⦁ There is equal distribution of resources hence no societal divisions ( the rich and the
poor)
⦁ Prices of commodities are relatively stable since they are regulated by the government
⦁ Change can occur relatively easily

⦁ Luxurious goods are not provided

⦁ Low quality goods are provided due to limited competition among producers
⦁ The process of gathering societal needs may be laborious
⦁ Consumers have few choices in the market
⦁ shortages are common because of poorly run factories and farms

⦁ An economic system, in which resources are owned, controlled and distributed by the
private individual or companies.
⦁ Forces of supply and demand determine the price
⦁ Little government control as economic decisions are made by private individuals.

⦁ Individuals choose how to invest their personal resources—what training to pursue,

what jobs to take, what goods or services to produce.
⦁ Good quality goods and services are provided as producers strive for competitive
advantage
⦁ It is profit oriented so producers are motivated to produce more

⦁ Usually focus on consumer goods thereby neglecting basic goods and services
⦁ And individuals decide what to consume.
⦁ It does not cater for the poor as products tend to be expensive owing to high
production costs
A
⦁ Combines elements of the market and command economy. Government and individuals
share the decision making process.
⦁ Individuals own the means of production. Many economic decisions are made in the
market by individuals.
⦁ But the government
⦁ guides and regulates production of goods and services offered, plays a role in the
allocation and distribution of resources and protects consumers and workers from
unfair policies
⦁ Market forces control most consumer goods

⦁ Government provide basic goods and services

⦁ Private sector provides luxurious commodities
⦁ Effective provision of goods and services due to shared responsibilities between
government and private sector

⦁ Unclear role definitions are common which delay distribution of goods and services
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Micro elementary economics is a branch of economics that focuses on patterns of supply

and demand and the determination of price and output in individual markets. At the end of
this lesson you should be able to do the following:
✓ define demand and supply
✓ describe the following:
⦁ law of demand
⦁ demand determination
⦁ law of supply
⦁ supply determination
⦁ elasticity of demand and supply
✓ describe price and it’s determination

It is the quantity of a commodity that consumers are willing and able to buy at a given
price, time and market.

⦁ The law that states,

⦁ This means that the higher the price, the lower the quantity demanded and vice versa.
⦁ The demand curve depicts the law of demand.

The main determinants of demand are:

⦁ Price of the good or service / the (unit) price of the commodity. The law of demand
states that when prices rise, the quantity demanded falls. This also means that, when
prices drop, demand will rise. People base their purchasing decisions on price, if all
other things are equal.
⦁ Prices of related goods or services. These are either complementary or substitute
commodities.
⚪ Complementary commodities are things that are usually bought along with the
product in demand. For example, tractor and diesel. An increase in the price of
complementary goods or services raises the overall cost of using the good you
demand, so reduces its demand.
⚪ Substitute commodities are things that can be used as alternatives to the
commodity in demand (e.g. Milo and Recoffy. When the price of a substitute
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rises the demand of its alternative good or service will increase.

⦁ Consumer’s income. When income rises, so will the quantity demanded. When income
falls, so will demand.
⦁ The tastes and preferences of the consumers. This is the desire, emotion, or preference
for a good or service. When tastes rise, so does the quantity demanded. Likewise, when
tastes fall, it will depress the quantity demanded.
⦁ Expectations . When people expect that the price of something will rise, then they
demand more of it.
⦁ The number of buyers in the market. As more buyers enter the market, the quantity of
commodities demanded will rise.

⦁ This refers to the quantity of a commodity that sellers are willing to offer for sale at a
particular price, time and market.

⦁ The basic law of supply is that as the market price of a commodity rises, so producers
expand their supply onto the market
⦁ A supply curve shows a relationship between price and quantity a firm is willing and
able to sell

Supply determination
⦁ Good's own price: An increase in price will induce an increase in the quantity supplied.
⦁ Prices of related goods: For purposes of supply analysis, related goods refer to goods
from which inputs are derived to be used in the production of the primary good.
⦁ Conditions of production: The most significant factor here is the state of technology. If
there is a technological advancement related to the production of the good, the supply
increases.
⦁ Expectations : Sellers' expectations concerning future market conditions can directly
affect supply. For example, if sellers expect a price increase in future they decrease the
supply of the commodity for which they expect the price increase.
⦁ Price of inputs: If the price of inputs increases the supply curve will shift left as sellers
are less willing or able to sell goods at any given price. Inputs include land, labour,
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energy and raw materials.

⦁ Number of suppliers: As more firms enter the industry the market supply curve will
shift out driving down prices. The market supply curve is the horizontal summation of
the individual supply curves.
⦁ Government policies and regulations: Government intervention can take many forms
including environmental and health regulations, hour and wage laws, taxes, electrical
and natural gas rates and zoning and land use regulations and can have a significant
impact on supply decisions.
⦁
⦁ Price elasticity of demand (PED or Ed) is a measure of the responsiveness of the
quantity demanded of a good or service to a change in its price, .
⦁ Price elasticity of demand measures the responsiveness of demand after a change in
price
⦁ The formula for calculating the co-efficient of elasticity of demand is:
)

quantity; quantity; price; price

: Since changes in price and quantity usually move in opposite directions, usually the
minus sign (-) is ignored. Only the of elasticity of demand are of concern.

1. demand is - demand does not change at all when the

price changes – the demand curve will be vertical.

(i.e. the % change in demand from A to B is smaller than

the percentage change in price), then .
2. (i.e. the % change in demand is exactly the same as the % change in
price), then demand is .
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3. , then demand responds more than proportionately to a change in price i.e.

. For example if a 10% increase in the price of a good leads to a
30% drop in demand. The price elasticity of demand for this price change is –3
4. If = ∞ Perfectly elastic demand

P7 200 50

P8 180 90

P9 150 150

P10 110 210

1. Determine the price elasticity of demand as the price increased from P9 to P10.
2. Is the demand elastic or inelastic?
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3. Give a reason for your answer.

Supply elasticity is defined as the percentage change in quantity supplied divided by the
percentage change in price. It is calculated as per the following formula:

The calculation of elasticity of supply is comparable to the calculation of elasticity of

demand, except that the quantities used refer to quantities supplied instead of quantities
demanded.

This occurs when an increase in price leads to a bigger % increase in supply, therefore PES
>1
Fig. Elastic supply curve

This means that an increase in price leads to a smaller % change in demand. Therefore PES
<1
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⦁ In a free market, the price of goods will vary until it hits an , (Ep).
⦁ is the point at which the total quantity of goods demanded equals
the quantity of goods supplied.
⦁ At this point an equilibrium price for goods is determined
⦁ is the price at which quantity demanded equals quantity supplied.
⦁ the limited resources are allocated to consumers in the most efficient way.
Fig. Price determination

✓ Describe the law of diminishing returns

✓ Describe opportunity costs
✓ distinguish between risk and uncertainty
✓ list examples of risk and uncertainty
When formulating a production programme a farmer has apply some economic principles
to make many important decisions. Examples of such principles include the law of
diminishing returns, opportunity cost and analysis of risks and uncertainties.
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⦁ Also known as “the law of variable factor proportions” or simply “the law of
proportionality” applies to all factors (inputs) in a production process
⦁ The law states that

⦁ Figure 6 shows the law of diminishing returns graphically.

⦁ As labour usage increases from L1 to L2, total output (measured vertically in the top
graph) increases by the amount shown.
⦁ But if labour usage is increased by the same amount again, output goes up by less,
implying diminishing marginal returns to the use of labour as an input.
⦁ The marginal product of labour (measured vertically in the bottom graph) is
diminishing (gives less increase in output than the previous unit) everywhere to the
right of point A.
⦁ Note that the law refers to additional output per additional unit of input, not the total
output. The output could still be increasing while additional output per additional input
is declining
⦁ The law helps one in determining how much to produce by assessing whether
additional input units will be worthwhile.
⦁ The profit maximising point in our example would be at L3 (point C), thereafter
additional labour would result in additional cost to the business
is the change in the output due to change in input (i.e. slope of the
total output curve). is the output per input (i.e. “labour productivity” in
case of labour)
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⦁ Scarcity makes economics. Producers often have limited resources in relation to a wide
range of productive opportunities. Because resources are limited in relation to needs, a
choice must be made. The use of one resource factor for one purpose prevents the use
of the same resource factor for other purposes.
⦁ Opportunity cost is the value of the forgone alternative(s) when choosing between two
or more alternatives.
⦁ For example, if one had only a 5ha land to grow either maize or sorghum. S/He may
find that sorghum would give him/her P10000 but maize would yield a return of
P15000. The farmer’s rational decision would be to produce maize to gain higher
revenue. The opportunity cost of producing maize would be the return the farmer could
have earned from producing sorghum which h is P10000.

These are unforeseeable and unavoidable circumstances (hazards) that face entrepreneurs.
A is a divergence between expectation and actual outcome. A risk can be estimated
and hence insurable. An is a state of imperfect knowledge about future events
or outcomes. Unlike a risk, an uncertainty cannot be predicted and thus cannot be insured
against.

⦁ Fire : While burning of farm produce and machinery can cause great losses to farming
businesses, the farmer does not know when this will occur.
⦁ Theft : Theft of livestock, crops and machinery can result in major set-back in farming
but nobody knows when it will occur.
⦁ Weather changes : Farmers have no control over occurrence of destructive weather
conditions such as drought, excessive rain, floods, frost and hailstorms.
⦁ Accidents : Accidents to employees or employers can occur at any time and can be
insured against.
⦁ Pests and diseases: Pests such as locusts and army worms, and diseases like foot and
mouth have been known to cause major economic losses in Botswana. However, no
one can tell whether they will be an outbreak on a farm.
⦁ Crop yields : No one certainly knows how much crop yields they will eventually
harvest from their plantations.
⦁ Health issues : A farmer or family member may fall sick at a time when critical
activities have to be done on a farm.

⦁ Price fluctuations : prices of crop produce, livestock products are not usually announced
prior to production.
⦁ Changes in demand : demand for a commodity may be different from what had been
anticipated.
⦁ Changes in technology : some farming techniques may quickly become out-dated due to
rapid technological advancement.
⦁ Change in government policy : the farmer is never certain of when the government will
change prices of certain goods or cut off supply of certain inputs.
⦁ Availability of inputs: unavailability of inputs such as labour fertilisers, herbicides,
pesticides and seeds cannot be envisaged ahead of time.
⦁ Breach of contract: no one can predict when stakeholders in a business will fail to fulfil
their promise.
Producers may adjust their production programmes to take into account uncertainties
associated with agri-businesses. The following measures are commonly adopted by
farmers:
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⦁ Input rationing
⦁ Diversifying
⦁ Flexible production methods
⦁ Selection more certain enterprises

Supplementary goods
Two goods are supplementary if an increase in one good does not cause an
increase/decrease in the other good. Supplementary goods do not compete for resources but
use the same resources at different times, e.g. growing sorghum during early rains and
wheat during late rains;
Complementary goods
Two products are complementary if an increase in one product causes an increase in the
second product. Complementary effect occurs when one product produces an input used by
the other product; e.g. inter-cropping sorghum and cowpeas, cowpeas produces nitrogen
needed by sorghum. Thus, sorghum will increase if the output of cowpeas increases.
Exercise

Farmer A intercropped maize with cow peas, the output of maize increased as the output of
cowpeas increased.
Farmer B grew maize and cabbage on the same field. An increase in the output of cabbage
did not influence the output of maize.
Which row shows the correct the relationship between the crops grown by the two
farmers?

CHAPTER 6.2 FARM MANAGEMENT

This lesson will equip you with knowledge and understanding of the concepts and uses of
production and financial records.
✓ differentiate between production and financial records
✓ state the types of production records
✓ state the types of financial records
✓ define variable costs, fixed costs, total costs, total returns and depreciation
✓ determine profit and loss of an enterprise
✓ prepare a balance sheet
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✓ determine gross margin of an enterprise

Effective management of a farming operation today requires that records be kept so

managers can make informed decisions affecting the profitability of their farms. On the
farm, there are two distinct types of records—financial and production.

Production records are items that relate to quantities of inputs and levels of production by
enterprise and/or by resource type. They consist of crop yields, plant populations, number
of calves born, amount of milk produced, weaning weights, death loss (mortality record),
etc.

Financial records relate primarily to money or the financial interactions of the farm.
Financial records justify or prove farm or transactions. Product sales,
operating expenses, equipment purchases, accounts payable, accounts receivable,
inventories, depreciation records, loan balances and price information are all examples of
financial records.

are costs that vary with the scale of production, e.g. costs of seeds,
fertilisers, fuel etc.

Fixed costs are costs that do not vary with the level of production. They are fixed even if
output moves up or down from period to period. They are usually fixed over a period of
greater than one year. Examples of fixed costs include:
⦁ Wages and salaries of permanent labour
⦁ Marketing (advertising, market research)
⦁ Insurance charges
⦁ banking fees
⦁ Consultant and adviser costs
⦁ Heating, light and other energy costs
⦁ Depreciation on buildings and machinery
⦁ Rent on buildings and land
⦁ Interest on loans
⦁ Leased equipment charges
are the sum of variable costs and fixed costs of a business. Total costs=fixed
costs + variable costs
A is the total revenue obtained from sale of a commodity. Synonyms are

Total returns = quantity sold x commodity’s unit price

A gross margin is sometimes called gross income, gross profit, or gross revenue. It is the
difference between total returns and variable costs of a business.
Gross margin = total returns – total variable costs
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The difference between total income and total costs [profit/ loss = total income - total
costs]. The difference between gross margin and total fixed costs [profit/ loss = gross
margin - total fixed costs]. A positive difference is a while a negative difference is a

The table below shows a financial record for 800 broiler production enterprise. Use it to
answer the questions that follow.

Fixed costs Amount (P) Receipts Amount (P)

Rent 3400 Sale of chickens 120 000
Labour 3500 Sale of manure 7 550
Tax 9800 Sale of giblets 123
Plucking machine 5000

Variable costs
Feeds 41945
Vaccines 6500
Water 1200
Packing trays 6000

a)
b)

a) P72 028
b) P50 328

is a non-cash expense that reduces the value of an asset over time. Assets
depreciate for two reasons:

⦁ For example, an auto will decrease in value because of the mileage, wear
on tires, and other factors related to the use of the vehicle.
⦁ Assets also decrease in value as they are replaced by newer models. Last
year's car model is less valuable because there is a newer model in the marketplace.
Depreciation is calculated as follows:
⦁ The original cost of the asset, including costs of acquiring the asset, transporting it, and
setting it up
⦁ Less the salvage value (the "scrap" value)
⦁ Divided over the years of useful life of the asset

⦁ Essentially, a is a statement that shows all assets, liabilities, and net

worth of a business.
⦁ It is a statement of the total and of an organisation
⦁ A yearly balance sheet usually drawn up annually to show the net worth (owner’s
equity or net capital) of the businesson a particular day .
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⦁ But there is also a point-in-time balance sheet that simply shows what the financial
health of a given business is at a given point in time.
The balance sheet is split into two parts: and
⦁ are items owned by the business eg buildings, crops, animals, cash at hand etc
⦁ are items owed by the business
The format of the statement follows:
Balance sheet for XYZ business for the year ending December 31, 2013

Assets BWP BWP Equity and Liabilities BWP BWP

215000 170000
Landand buildings 200000 0 capital 170000
furniture 0
Machinery 12000
Investments 18000 10% loan 440000
120000 440000
10000 20000
Inventory 1000 creditors/ payables 20000
Debtors/ receivables 3200
Cash in bank 5800
Total assets 216000 Total liabilities and 2160000
0 equity

Have students ask a local agricultural business for a copy of a , analyze it,
and submit a brief report.

In this lesson you will develop skills on the setting up and operation of an Agro-business.
✓ list skills and resources necessary to start an agri-business
✓ discuss the common forms of business organisation of sole proprietorship, partnership
and company
✓ design an effective organisational structure of a businesses

⦁ A form of business that is owned by a single individual, called the sole proprietor.
⦁ Business is financed by the owner
⦁ All profits/ losses made belong to the owner
⦁ It makes no legal distinction between the business and the individual owner
⦁ The sole proprietor has full control of the business
⦁ Any employees are hired by the owner.
⦁ Any contracts entered into are entered into personally by the owner.
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Advantages
⦁ Easy to start up since there are no, contracts or capital limit required.
⦁ It is quick to make decisions in this business
⦁ Require little income to start
⦁ Owner retains all profits earned as personal earnings
⦁ Business does not require legal recognition
⦁ Owner has more contact time with employees
⦁ Owner is completely free to make decisions about its operations or switch from one
business to another or from one location to another.
⦁ Pays low tax since business profits are treated as income earned by the owner..
⦁ There is secrecy as sole owners are not required by government to publicly reveal their
business plans and profits, so competitors cannot know these vital business facts.
Disadvantages
⦁ Unlimited liability as owner personal assets may be sold to pay business debts.
⦁ Lack of continuity since by definition, the business ends upon the death of the owner.
⦁ Limited source of finance for expansion
⦁ Limited management skills: the sole proprietor is often the sole manager, salesperson,
buyer, accountant, and janitor.
⦁ Difficulty in hiring employees: potential employees may feel that there is no room for
advancement in a firm whose owner assumes all managerial responsibilities.
⦁ It is difficult to raise capital

A partnership is an association of two or more persons who act as co-owners of a business

for profit.
Types of partnerships

A general partnership is a voluntary association of two or more individuals, partnerships,

corporations or other associations for the purpose of carrying on, as co-owners, a business
for profit. General partnerships are typically formed by either an oral or written agreement
between the partners. General partners are active in the day-to –day operations of a
business. Each partner is taxed on his/her share of the profit. To avoid future liability a
general partner who withdraws from the partnership must give notice to the creditors,
customers and suppliers.

A limited partnership is quite similar to a general partnership. However, there are a few
key distinctions. A limited partner invests capital in the partnership but does not have the
right to participate in the management of the partnership business and does not have
unlimited personal liability for partnership debts and obligations. Instead, the liability of a
limited partner is limited to the amount of his or her capital contributions to the limited
partnership. If the limited partnership’s debts exceed its assets, a limited partner cannot be
compelled to make up the difference, while a general partner can. Thus, a limited
partnership offers one important advantage over a general partnership – the opportunity for
some of the business owners to enjoy limited liability.
Advantages
⦁ Ease of start-up: like sole proprietorship, partnerships are relatively easy to form as
there are no legal documents required although legal advice may be helpful.
⦁ Availability of capital and credit: partners can pool their funds together to have more
investment capital than would be available in sole proprietorship.
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⦁ Retention of profits: all profits belong to the owners of the partnership.

⦁ Personal interest: unlike sole proprietors, partners are more concerned about the
operation of their business than for their own.
⦁ Combined business skills: partners may have complementary skills; the weakness of
one partner in a certain area may be offset by another’s strength in that area.
⦁ Possible tax advantage: partners are taxed on their individual income earned from the
business.
Disadvantages
⦁ Unlimited liability: general partners are personally responsible for all business debts,
irrespective of which partner incurred those debts.
⦁ Lack of continuity: if one partner dies, withdraws or is declared legally incompetent,
the partnership dissolves.
⦁ Management disagreements: where partners are divided according to responsibilities,
disagreements may arise about decisions, policies or ethics leading to distrust that may
worsen over time.
⦁ Frozen investment: while it is often easy to invest money in a partnership, it is
sometimes quite difficult to get it out.

A limited liability partnership (LLP) is a relatively new type of partnership in which all
partners enjoy a reduced form of liability in that they are not normally personally liable for
the negligence of another partner.

⦁ Form of business that is owned by shareholders

⦁ A minimum of two people can own a private limited company while a minimum of
seven people in case of public limited company
⦁ It is financed by shareholders
⦁ It has a charter document or memorandum of association
⦁ It exist as a separate legal entity of its members
⦁ It exists only if registered under the companies act
⦁ It acts through a board of directors
⦁ Shareholders get profit according to the proportion of their shareholding
Advantages
⦁ Shareholders have limited liability for company debt
⦁ Ownership is easy to transfer
⦁ Business enjoys continuous existence
⦁ High capacity for a business to grow
⦁ Flexibility: The benefits and flexibility they offer have made them a popular choice for
small businesses.
⦁ Possible tax advantage, it is taxed like a partnership thus avoids the double taxation
imposed on most corporations.
⦁ Capital is easily raised through sale of shares as it presents opportunity for small investors to invest in
Disadvantages big companies
⦁ It is not easy to form
⦁ Costly to start and operate,
⦁ Involves extensive record keeping
⦁ Decision making is slow

⦁ A cooperative is an association of individuals or firms whose purpose is to perform

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some business function for all its members.

⦁ Cooperatives are found in all segments of the economy but play an important role in
the agricultural industry in a long time.

Advantages
⦁ Members share overhead costs which results in a higher net income per member.
⦁ Members have a big bargaining power for better prices, credit, and acquisition of large
capital items.
⦁ Agricultural information and knowledge is easily disseminated among the
co-operators.
Disadvantages
⦁ Political influence: decisions taken with political motives may ruin the running and
administration of a cooperative movement.
⦁ Lack of capital: some cooperative may collapse owing to insufficient funds to run their
business.
⦁ Treachery of members: irresponsibility by some members who may not repay loans or
delay in paying eventually results in death of the cooperative.

⦁ Organisational structure refers to the levels of management and division of

responsibilities within a business.
⦁ When people specialising in different jobs that are interdependent it is important to
represent this in an organisational chart.

Here are the most important features of the chart:

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⦁ It is a hierarchy. There are different levels in the business which has different degrees
of authority. People on the same level have the same degree of authority.
⦁ It is organised into departments, which has their own function.
⦁ It shows the chain of command, which is how power and authority is passed down
from the top of the hierarchy, and span of control, meaning how many subordinates one
person controls, of the business.

An organisational chart has the following advantages:

⦁ The chart shows how everybody is linked together. Makes employees aware of
the communication channel that will be used for messages to reach them.
⦁ Employees can see their position and power, and who they take orders from.
⦁ It shows the relationship between departments.
⦁ Gives people a sense of belonging since they are always in one particular department.

Introduction
In this section you acquire skills on the different aspects of marketing.
✓ explain marketing
✓ discuss marketing related activities
✓ explain market research and it’s importance
✓ explore different Agricultural products in the market and choose one (1) product to do
a market research on
✓ explain why business advertise
✓ identify strategies used in promotion of sales
What is marketing?
⦁ Marketing is defined as the process of exchange between the seller and the buyer. It is
the human activity directed at satisfying needs and wants through the exchange
process.
⦁ It is the process of determining the needs and wants of consumers and being able to
deliver products that satisfy those needs and wants.
⦁ Marketing includes all of the activities necessary to move a product from the producer
to the consumer.

In order for the marketing bridge to work correctly, the marketing process must accomplish
some important functions.

⦁ people have the opportunity to buy products that they want.

⦁ producers function within a free market to sell products to consumers.
⦁ – buying products from producers and collecting it in one place for
processing and distributing to final consumers.
⦁ banks and other financial institutions provide money for the production
and marketing of products.
⦁ products must be stored and protected until they are needed. This function is
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especially important for perishable products such as fruits and vegetables.

⦁ products must be physically relocated to the places where consumers
can buy them. It includes rail road, ship, airplane, truck, and telecommunications for
non-tangible products such as market information.
⦁ processing involves turning a raw product, like wheat, into something the
consumer can use -- for example, bread.
⦁ insurance companies provide coverage to protect producers and
marketers from loss due to fire, theft, or natural disasters.
⦁ information from around the world about market conditions,
weather, price movements, and political changes, can affect the marketing process.
Market information is provided by all forms of telecommunication, such as television,
the internet, and phone.
⦁ Many products are graded in order to conform to
pre-determined standards of quality. For example, when you purchase grade 1 eggs,
you know you are buying the best eggs on the market.

Any organized effort to gather information about markets or customers.

⦁ It is a key factor to get advantage over competitors

⦁ Provides important information to:
⚪ identify and analyze the market need, market size and competition
⚪ reduce business risks
⚪ identify opportunities
⚪ spot current and upcoming problems industry

Advertising is the use of paid media by a seller to inform, persuade, and remind about its
products or organization—is a strong promotion tool. Any paid form of non-personal
presentation and promotion of ideas, goods, or services by an identified sponsor. The
primary purpose is to:
⦁ consumers about a new product or feature to build primary demand.
⦁ consumers that the business offers the best quality for their money, which is
used to build selective demand for a brand
⦁ one brand directly or indirectly to one or more other brands.
⦁ consumers to keep thinking about a product. This form of advertising is more
important for mature products.

Section A (10 marks)

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1. Which of the following is likely to increase the quantity of a product demanded?

A. Increase in population
B. Increase in price
C. Increase in supply
D. Increase in other price

2. Which one of the following describes a situation where when sorghum is intercropped
with beans will result in increased output of sorghum as output of beans increase?

A. Supplementary
B. Competitor
C. Substitute
D. Complementary

3. Which one among the following describes an economic system that combines both the
market centre and non-market sector?

A. Planned economy
B. Socialist economy
C. Mixed economy
D. Market economy

4. Which of the following describes the responsiveness of demand of a product to

changes in its own price?

A. Elasticity of demand
B. Perfectly elastic demand
C. Unitary elastic demand
D. Inelastic demand

5. Which of the following is considered a fixed cost in an agribusiness?

A. Cost of stock medicine

B. Cost of stock feed
C. Depreciation cost
D. Fuel cost

6. Which of the following correct determines profit made in an enterprise?

A.
***Profit = gross margin – total fixed costs
B. Profit = gross margin – total variable costs
C. Profit = total fixed costs – total income
D. Profit = total variable costs – total income

7. The total costs of a business were P 20000. Its total fixed costs were P6000.
What was the gross margin of the business?

A. P6000
B. P14000
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C. P20000
D. P26000

8. What is a sole proprietorship?

A. A business owned by one person

B. A business with limited liability
C. A private limited company
D. A way of managing an enterprise

9. Which of the following are correct entries for a balance sheet?

A. Expenses and income

B. Expenses and assets
C. Liabilities and assets
D. Liabilitites and income

10. Why do businesses advertise?

A. To fulfil a legal requirement

B. To inform consumers of new products
C. To display marketing skills
D. To communicate with shareholders

1. In Botswana the Dolicos lablab is grown for leaf production.

Fig. compares the relationship between yield and the amount of starter nitrogen
fertiliser added to the soil.

fig.
a) Explain how the use of a nitrogen fertiliser produces better growth of leaves. [1]
b) What principle does the graph illustrate? [1]
c) Explain your answer in (b). [2]
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2. The business enterprise that exists as a legal entity is owned by shareholders and is
controlled by the Managing Director. It produces vegetables and sells them to retailers.
A Production Manager reports to the Production Director about issues concerning
production and his employees. The Marketing Director is responsible for promotion
and distribution of the products and these duties are carried out by managers. There are
employees in each of the promotion and distribution divisions.

a) State the type of business organisation for this enterprise [1]

b) State two advantages of this business organisation [2]
c) Draw an organisational structure of this business enterprise. [4]
d) Suggest the route followed by a vegetable production employee when ordering
vegetable seeds [3]

3. The information shows an incomplete balance sheet. Use it to answer questions 3(a)
– (d).

Assets Amount (BWP) Liabilities Amount (BWP)

Cash Short Term Liabilities:
Inventory: Long Term Liabilities:
Capital Equipment:
Other Assets:

a) How did you forecast your numbers?

[1]
b) What was most difficult to forecast? [1]
c) What have you learned about your numbers?
[2]
d) What would help you create your balance sheet more efficiently? [1]

4. A farmer owns 20hectare field valued at P500 000. He bought a tractor with a plough
at P150000 and 10 bags of hybrid maize seeds at P200 each. He hired 10 casual
labourers for 30 days at P100 a labour per day. He sold 1000bags of maize to the
Botswana Agricultural Marketing Board (BAMB) at P100 each.
a) Determine the variable costs incurred by the farmer.
[2]
b) The farmer reported that he had made a net profit of P68000. Show how the farmer
determined this as the profit.
[2]
c) Is P68000 the actual profit the farmer made, Yes/No? [1]
d) Justify your answer (show your working) [3]

1. Write short notes on the following:

a) Difference between planned economy and free market economy [3]
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b) Factors of production
[3]
c) For a named agribusiness give examples of entries for each of the following:
i. Financial records [2]
ii. Production records [2]

2. With clear illustrations describe the following:

a) The law of diminishing returns [5]
b) Elasticity of demand for a named product [5]